According to a 2020 TD Ameritrade report, most Americans hope to retire around the age of 67 — but nearly two-thirds of respondents in their 40s had less than $100,000 saved. Even worse, 1 in 5 respondents in their 70s had less than $50,000 put away. Furthermore, a 2021 Schroders survey of non-retired or near-retirement individuals found that only 18% felt “very good” or “fully on track” in terms of meeting their retirement goals.
While these are certainly alarming statistics, they’re not surprising.
Several factors make saving for retirement in your 50s and beyond more difficult. For starters, older Americans sometimes become complacent in terms of financial literacy. They often assume they know enough to develop a good plan, but then they’re caught off guard by unanticipated events. Given the countless variables and shifting circumstances that can affect an individual’s retirement strategy, improving financial literacy needs to be an ongoing endeavor.
Plus, quite a few people change their spending habits as they age. After working and saving for years, they might eschew fiscal discipline to enjoy retirement. A vacation, a boat, a new car, or frequent restaurant visits might be perfectly suitable from a financial perspective, but people approaching retirement must fully understand how changes in spending could alter their long-term financial outlook.
How to Invest as You Get Older
In general, people become more risk-averse as they age. They realize they have little remaining time to save incremental retirement assets and even less time to recover in the event of a significant market downturn. Their focus begins to shift from increasing retirement capital to preserving their portfolios, which they’ll soon rely on for spending needs.
Today, many Americans believe they should shift their portfolios away from equities into bonds as they approach retirement. Historically, this strategy has been sound: A bond-heavy portfolio lowers investment risk and steadies income generation. Amid increasing inflation and dramatically lower bond yields, however, a shift from equities to bonds could yield a negative real return for the portfolio — and be quite damaging to an individual’s financial health.
There’s no question that anyone approaching retirement should seek to reduce portfolio risk, but the current interest rate environment requires a more creative strategy than simply selling stocks in favor of high-quality bonds. That could mean exploring other asset classes like investment real estate, foreign bonds, and preferred equities. As older investors reduce exposure to stocks, these financial instruments could help them lower portfolio volatility and generate enough yield to overcome the effects of inflation.
Wealth Management Strategies for Older Americans
The older investors get, the more they think their current saving status can’t change. They either believe they’re set or they don’t have enough time to fix it. While the best retirement saving strategies will vary depending on individual circumstances, there are a few strategies that older Americans might consider as they prepare to exit the workforce, including:
1. Take advantage of catch-up contributions
If you’re over the age of 50, you can contribute more to your 401(k) and IRA (both traditional and Roth) accounts than you could when you were younger. Capitalize on this by increasing the amount of money you set aside for retirement each year. As a bonus, you can also decrease your tax burden if you’re using a traditional retirement account.
2. Leverage expense changes to save more
Expenses can change a lot as you approach retirement, particularly if you have kids who have already moved out of your house or graduated from college. If you no longer support your children financially or have already paid off larger expenses like a mortgage, allocate income usually used for those payments toward your retirement savings.
3. Don’t neglect financial literacy
When it comes to money, knowledge is power. The more you know about the options at your disposal, the easier it will be for you to act decisively when faced with a new financial challenge or opportunity. Self-directed online courses or ongoing meetings with your financial advisor can help you get a firm grasp of the steps needed to maximize your portfolio value as you age.
Retirement planning never ends, so it’s crucial to adopt a growth mindset even if you’re already nearing the finish line. Whether you think you have enough saved or are unsure about how you’ll fund your life after work, there are steps you can take now to improve your financial outlook.
This article is prepared by Pekin Hardy Strauss Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article does not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author as of the date of publication of this report and are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future; there are no assurances that any predicted results will actually occur.
